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For many optometrists, becoming a new owner is a huge step forward in their professional lives, so understanding how optometry business loans can help them complete this potentially life-altering experience is vital. An easy way to get into a turn-key practice is to have an existing patient base, staff that is already trained to work with you, and a proven revenue stream.
That said, getting enough money to purchase a practice can sometimes be difficult without having the right cash flow. Fortunately, lenders have developed specialized lending options to help bridge the gap between your dreams of owning your own business and the real-life experience of being an owner.
Understanding Your Financing Options for Practice Acquisition
Navigating the landscape of optometry business loans means understanding what loan products can be used to purchase practices for those interested in starting or owning an existing optometry business in the U.S.
1. SBA 7(a) Loans
Because of the favorable terms associated with them and the backing of the U.S. government, one of the most popular options for individuals who want to receive optometry business loans is through the SBA 7(a) program. The SBA has created this type of loan to enable small business owners to buy existing businesses with competitive rates and longer terms. While the SBA will allow some borrowers to put down as little as 10% on a newly acquired business, the majority of borrowers will have to put down a greater amount than that to cover the associated fees and expenses of acquiring the business when utilizing the SBA 7(a) program.
2. Traditional Term Loans
As a second option of optometry business loans available to optometrists, conventional loans allow practitioners to borrow a set sum of money from a lending institution to be repaid with interest over a specific period of time. Like other traditional term loans for medical professionals, practice acquisitions are simple and easy to obtain by providing documentation of personal credit history as well as your experience and financial situation, before qualifying for an acquisition loan. While an acquisition loan typically requires that the practitioner put down a larger percentage than some SBA loans require, it's not uncommon for well-qualified candidates to receive an acquisition loan much faster than they would for an SBA loan.
3. Practice Acquisition Loans
Acquisition loans are one of the optometry business loans designed to help optometrists complete the transaction to acquire an existing practice and, in most cases, obtain working capital immediately following the completion of the acquisition. Unlike most traditional commercial loans, acquisition loans have been designed specifically for the unique types of risk and valuation factors that exist with healthcare practices, and lenders will therefore use the practice's cash flow history, patient retention rates, and the current fair market value of equipment to determine the amount of the loan.
4. Cash Flow and Valuation Analysis
Lending organizations conduct a thorough analysis of the target practice's profitability and historical cash flow when lending optometry business loans. Lenders verify that the practice generates enough income to adequately cover debt service and payroll for the business owner. An accurate valuation is critical because it provides guidance regarding a purchase price and helps support a reasonable amount of financing for the practice.
5. Merging Financing Sources for Feasibility
In certain cases, a financing source alone may not cover the entire cost of an optometric practice, so optometry business loans may be combined with other financing mechanisms to develop a more feasible transaction structure. A common example is to use an SBA loan in conjunction with seller-assisted financing, where the seller maintains an interest in the business and agrees to receive instalment payments. Seller-assisted financing for buying optometry practice reduces the amount borrowed from the bank and aligns the seller's interests with the business owner's long-term success.
Evaluation of Financial Readiness
Prior to officially entering the marketplace, understanding the financial specifics of optometry financing allows for a better understanding of your ability to finance your purchase. Early preparation of your personal and professional finances expedites the application process while improving your chances for approval with better conditions. Preparing yourself and your finances includes:
• Getting a professional valuation of the target practice to determine its present market value.
• Reviewing your personal credit history for any information that could hinder your ability to get a loan.
• Providing the lender with a complete set of personal and professional tax returns for the last three years.
• Developing a business plan that includes how you will keep or improve the practice's profitability.
Final Words
The acquisition process can be complicated, but by working with professionals who understand the acquisition process and having an understanding of the funding options that are available to you, you can complete the acquisition process. By using optometry business loans strategically, you can confidently acquire an existing practice and secure your future as an optometrist. Regardless of whether you choose to use an SBA-qualified loan or some type of traditional bank loan or hybrid loan (combination of both), make sure your cash flow strategy matches the cash flow of the practice you are acquiring.
